GBP/USD bulls poke 1.2250 with eyes on BoE’s Bailey, Fed’s preferred inflation gauge

• GBP/USD picks up bids to refresh intraday high after two-week uptrend.
• Fears of US recession underpin latest fall of the greenback amid downbeat yields.
• Hopes of more soothing economic measures for the UK energy companies from PM Sunak help Cable buyers.
• Speech from BoE Governor Bailey, US Core PCE Price Index eyed.

GBP/USD begins the week on a positive footing, renewing its intraday high near 1.2250 while extending the previous two-week uptrend, as fears of US recession join positive headlines from the UK. However, the cautious mood ahead of this week’s key data/events seems to test the Cable pair buyers.

That said, the quote managed to cheer the Bank of England’s (BoE) 0.50% rate hike with mostly positive economics, as well as the downbeat US Treasury bond yields. However, Friday’s risk-negative headlines tested the GBP/USD buyers before the latest run-up, backed by the weekend news.

During the weekend, Minneapolis Fed President Neel Kashkari said on the CBS show Face the Nation that recent stress in the banking sector and the possibility of a follow-on credit crunch brings the US closer to recession. His comments joined the Financial Times (FT) headlines suggesting more relief to the UK’s energy companies to favor the GBP/USD prices. “Britain’s oil and gas companies are next week expected to be offered the prospect of windfall tax relief, as prime minister Rishi Sunak looks to boost investment and improve the country’s energy security,” said FT.

Previously, UK Retail Sales offered an upside surprise for February by marking 1.2% MoM growth versus 0.2% expected and 0.9% previous. Further, the Core Retail Sales, which excludes the auto motor fuel sales, rose 1.5% MoM compared to 0.1% market forecasts and 0.9% previous. It’s worth noting, however, that the UK’s preliminary S&P Global/CIPS Services PMI for March came in at 52.8 compared to February’s 53.5 final print and 53.0 expected. On the same line, the first readings of Manufacturing PMI dropped to 48.0 for the said month compared to 49.8 expected and February’s 49.3 final readout. With this, the Composite PMI eased to 52.2 versus 52.8 market forecasts and 53.1 previous readings.

Following the mixed UK data, Bank of England (BoE) Governor Andrew Bailey spke during a BBC interview while saying, “There is evidence of encouraging progress on inflation, we have to be vigilant.” The policymaker also added that the risk of recession this year has gone down quite a lot. Further, BoE Monetary Policy Committee (MPC) member Catherine Mann said on Friday that she voted for a 25 basis point (bp) rate hike instead of a bigger increase, motivated in part by the fact that inflation expectations began to moderate, reflecting that monetary policy is having an effect. 

On the other hand, US Durable Goods Orders for February dropped by 1.0% versus January's fall of 5% (revised from -4.5%) and the market expectation for an increase of 0.6%. Details suggested that the figure for Durable Goods Orders ex Defense and ex Transportation were also downbeat but Nondefense Capital Goods Orders ex Aircraft came in firmer-than-expected 0.0% to 0.2%, versus 0.3% prior. Moving on, the preliminary readings of the US S&P Global PMIs for March came in firmer as the Manufacturing gauge rose to 49.3 from 47.3 in February, versus 47.0 expected, while Services PMI rose to 53.8 from 50.6 prior and 50.5 expected. With this, the S&P Global's Composite PMI increased to 53.3 from 50.1 in February, versus 50.1 market forecasts.

Following the data, Atlanta Fed President Raphael Bostic told NPR that it was not an easy decision to raise the policy rate while also adding that he is not expecting the economy to fall into recession. "Fed has to get inflation under control,” said Fed’s Bostic. Further, St. Louis Federal Reserve President James Bullard, a policy hawk, said on Friday that the response to the bank stress was swift and appropriate, allowing the monetary policy to focus on inflation, per Reuters. The policymaker also added that the projections suggest one more rate hike that could be at the next FOMC meeting or soon after.

Elsewhere, the fears of Russia’s nuclear usage in its war with Ukraine and political chaos surrounding Brexit probes the GBP/USD bulls.

Looking ahead, a speech from BoE Governor Bailey can entertain intraday traders of the GBP/USD pair but major attention will be given to the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index.

Technical analysis

Unless rising back beyond the previous support line from early March, around 1.2325 by the press time, GBP/USD remains vulnerable to retesting the 50-DMA support around 1.2150.